Archive for: January 2007

The psychology of trading is about the psychology of beliefs , strategies and behaviors. Trading is a mental and physical game which provides an intellectual with physical and emotional challenge of the highest order. This is absolutely true …

What is your reason for trading ? How does losses affect you ? It all depends on your psychological make-up. If you have fear of losing or fear of failure , this may have built upon itself. On the other hand , if you are more resourceful in such circumstances , losses can be an excellent opportunity for learning.

Our psychology determines the way we trade , the way we handle risks , how we react to volatility , and how we deal with losses if they occur. It is between maximizing profits or minimizing losses. Trading is really about maximizing profits at a managed level of risk. Proper education and hard work as well as analysis can help us understand and minimize risk.

Psychological make-up does not only include emotion , but also philosophy of life. …

What are your top two goals in your life at this point of time ? Security and Sex ? Health and Security ?

Success and Happiness for me at this point of time as a trader. Many traders never achieve success and happiness simultaneously. Key reasons are :

We worry constantly about losing in the markets. Fear and confidence factors.
We need to feel excitement , which tends to create losses. Many people pay to get excitement from the market.
We set conditions on our happiness. Do you do that too ?
We focus on what we do not yet have. Day dreaming too much …

As traders become more successful , they have more to lose , more to worry about and more to achieve before they can become happy. Misery-thinking too often becomes a way of life for traders. Then they can never be happy …

Yes , this potent combination of trader success and trader happiness is rare. That is because so few traders understand the underlying forces in their profession which work against their happiness as they propel themselves toward success….

I was having breakfast with a an “old” friend ( I don’t mean age ) this morning. I was asked how I felt about the current market situation. Generally , world market has been bullish for quite a while. Is it time or is it too late to get into the market now ? Can I open an trading account now ? Will I missed the boat ? These are some of the common questions people tend to ask … especially when market peaks to tops or bottoms.

That brings me to my discussion topic here - Market Sentiment. Sentiment is just another word for “feelings”. It is amazing how public “feelings” tends to be closely correlated with stock market price. In other words , very negative opinions are usually predominant during the bottoming phase of a market move , and , very positive opinions are usually prevalent during the topping phase of a market move.

Market sentiment is not a trading method which can be used independently. However , it is a valuable ” …

Trade exits can be just as important , if not more important , than trade entries. Learning to love to take loss is an absolute necessity if you were to be successful in the trading market. Basically you need to reach a psychological stage whereby losses should not bother you much , so long as you act fast to be out of the market when the trade no longer represent a profitable opportunity. No one is going to be happy to have a losing trade , but you should be happy to be able to minimize loss before it ruin your capital.

Many traders learn this the hard way. They end up losing their trading account before they realize the importance of preserving capital and the concept of stop loss.

Just like a trade entry , the window of opportunity is rather narrow for trade exit too. Once you confront the possibility of being wrong , and when it is time to …